The CO sports betting regulator needs to plug some “gaps” in its process, according to a new audit of the state’s betting market.
The Colorado State Auditor published Monday its review of the Colorado Division of Gaming (CDOG) and the Colorado Limited Gaming Control Commission.
A press release highlighted the so-called gaps in the regulation.
What is in CO sports betting audit?
The audit covered the first year of Colorado sports betting from May 1, 2020 to April 30, 2021. It found three key issues with the market.
- Sportsbook operators can carry over revenue losses month to month for tax purposes, potentially lowering tax take.
- Most operators were licensed on a temporary basis without sufficient background checks.
- There were too many discrepancies in the monthly revenue/tax reports submitted by operators.
1) Where is the tax revenue?
The auditor said lawmakers “may want to consider the effects” of the Commission rule that allows sportsbooks to carry forward monthly losses.
That concession reduces operators’ tax liability, and “may not align with the best interest of voters,” the auditor said.
Colorado collected just $6.6 million tax in its first year of operation. The state could have added an extra $700,000 without the carry-over concession, the auditor said.
However, Colorado already moved to address the tax issue somewhat, passing legislation to lower the amount of promo spend that operators can write off.
2) Cursory background checks?
As of March 2022, 35 of the 39 licensed CO sports betting operators held temporary licenses. Those licenses require limited background checks, the auditor said.
Similarly, the auditor checked five licensed books and found none had undergone “minimum background checks.”
The auditor said the oversight meant CDOG might have licensed sportsbooks “without full assurance of their suitability.” Accordingly, this could “erode public confidence in the Division and the industry,” the auditor said.
3) Tax discrepancies
Finally, the auditor sampled 22 tax filings and found a “wide variation” between daily reports and monthly filings. For instance, a sportsbook reported $1.4 million more net gaming revenue in daily reports than in monthly tax filings.
The auditor said some changes were expected because of voided wagers, but the regulator had no system to check this.
“As a result, the Division could not demonstrate if or how it verified that the tax filings were based on accurate data,” the auditor said.
CO sports betting regulator reacts
The auditor made 10 recommendations to the two regulating bodies to sharpen up these areas. CDOG did not respond to an LSR request for comment. However, it told the auditor it would take the recommended actions.
In addition, CDOG said it was engaging with the Governor’s Office of IT to develop its data management system. The regulator explained:
“With the implementation of the sports betting data system, the audit team will be able to run reports generated from direct daily data feeds from the operators and verify them to the monthly tax obligations.”
CDOG has until February 2023 to implement the changes.